Firstly, a couple of you replied to the suggestion that we get everyone back again for a gathering at the Sun Villages site, so how about we meet for an April fools party on Saturday April the 1st? I’m not quite sure how one would celebrate April Fools Day, and rather than look it up on Google, lets invent something and come up with something original. With the strength in numbers aspect working in our favour, we could probably stage a really good April fool’s trick. Maybe even somehow on ourselves? I’m all for theatrics. Thoughts? Ideas?

I noticed that in a previous newsletter I stated I was going to get someone with more knowledge than me to explain how and why a Sun Villages investment is different from and better than other real estate opportunities. Recently I’ve been gaining some of that knowledge myself through my involvement in creating the new Information Memorandum (IM) that will be used to find a suitable Responsible Entity (RE) to help us create a Managed Investment Scheme (MIS ) which will give us permission to seek, solicit and find investors to raise all the construction funds from anyone and everyone and without the restrictions we had previously. The IM document is in the final stages of being completed (awaiting some finance figures) and will be accompanied by a non-disclosure document to anyone that reads it, to help us protect the model from being “bastardised” for lack of a better word. Resident investors who would like to see a copy, let me know. It’s been great to be part of creating this document; I’ve learned heaps. The contents and topics of this newsletter have come directly from the work we have done to create this IM document. They are:

Selling and buying costs when upsizing and downsizing and the cost of unused space.

Protection from interest and the risk of property loss.

Claiming tax deductions on depreciation of buildings, fixtures and fittings.

Capital growth potential from a good location.

Selling and buying costs -and the cost of unused space.Considering the stats on Australians’ moving habits and how expensive they are, you’d think we’d be more informed. Articles refer to them as: “the hidden costs” or “unknown costs” and “surprises”. And I’m not talking about hypothetical costs such as the cost of income loss while backpacking around the world, or the costs of buying a caravan and travelling around Australia in between selling one house and buying another. I’m not talking about mobility freedom and adventure at all. I’m talking about your plainest, simplest and most common form of moving from one house to another, usually within the same area, purely for utilitarian purposes, into bigger and bigger homes when we are younger and growing a family, and then smaller homes when we are older. And to tie into the issue of unused space, in the middle of this journey from small house up to big house and back down to small again, there is a period when the house reaches its peak size. From there, it slowly gets emptier and emptier, until it reaches a peak level of emptiness and stays that way for quite some time, before the downsizing starts to happen. New data, just compiled (by Sun Villages) from several sources, reveals that on average Australian homes are among the world’s most empty with an average of only 2.6 people per house while our new homes are now officially the world’s largest, averaging at 245 square meters or about 10 “tiny homes” per person. And with each one of these moves to upsize or downsize we are spending about $50,000 in “moving costs” every 6 years on average from the time we buy our first house. I have to say that again. $50,000 every 6 years! The table at the end of the newsletter has a breakdown of these costs which are up from $35,000 every 7 years back in 2002. Add to this that the portion of our household debt that is for housing is now up to 75% from 47% in 1990 - and it illustrates that we are creating bigger, more expensive houses and then leaving them emptier for longer, and borrowing more money to do it. From this vantage point, it becomes clearer as to why the Sun Villages model came into being and also how good it is. For those of you that have been in this space for a while, you know exactly what I mean, and I'm sure these statistics make you feel good about pioneering a better way. Good onya! For those of you who are new, in simplest terms, the Sun Villages model was designed to go against this grain and make efficient use of space and eliminate expensive transaction costs. The Sun Villages model does this without having to Air BnB your home at every possible opportunity. The following paragraph is taken from notes created for the new IM. “Residents will have serviced apartments either next door or in close proximity that can be booked and paid for by them or any other resident, at special rates, on an as-needed basis-for visiting friends and relatives. Residents can also take such space on an exclusive, long term basis and have it joined/added to their apartment as needed, and then relinquished back to shared status when no longer needed. This saves residents money that is usually spent on paying transaction costs for upsizing or downsizing and for space that is not used or under used.”

Protection from interest rate hikes, compounding interest payments and mortgage stress.Average interest rates in Australia are currently at 5% an all time low, and many say they will have to go up at some stage. At one point in the late 80s, interest rates in Australia went up as high as 18%. Financial planners are advising people to calculate the risk of interest rate hikes into their financial plans. Even without an interest rate increase, the nature of interest is that it accumulates in a compounded way. It is the major source of revenue for the banks and the finance industry. The Sun Villages model was designed to protect us from these costs. (If I was clever this next little section would be in a side bar so that one could skip it and continue up ahead. How about I just put this “story” in italics?) Another thing of interest worth raising while speaking of raising interest rates (pun fully intended) is that a recent meeting with a worldly, learned scholar caused the word “usury” to enter the fray of the Sun Villages conversation. It sparked some further research and the article on Wikipedia is an interesting read. Historically, usury meant interest payments of any kind, charged by money lenders, and was highly criticised and most often, strictly forbidden the world over. Over the years in the mainstream Christian world. it has come to mean “unfair” or “unreasonably high” interest charges. Our learned scholar, who was coming to learn more about Sun Villages, helped us draw a previously unknown distinction between usury -in the original sense of the word- and joint venture business between two parties, where someone with money invests in another person’s venture for an agreed upon return, or a share in the profits of that venture. He pointed out that in modern day Islam, usury (in the original sense) is still not permitted, whereas joint venture agreements are of course fine, making the Sun Villages model the best he had seen -for removing usury from home ownership. Thank you Mr Talat. May I take this time to say that our meeting is a great example of the benefits of a multicultural society where we can learn from each with mutual respect and appreciation. And here’s a short video from JAK a small, successful interest-free bank that was founded during the Great Depression in Denmark along with a LETS system. It was formed on the basis that: “Charging interest creates an unstable economy, causes unemployment, inflation, environmental destruction, moves money from the poor to the rich and favours projects which yield high profits in the short term.”

Anyway, if you skipped that part above in italics for a lack of interest in other people’s interest in the history of interest, in the best interests of time, then its time you should know that we recently created a direct comparison between purchasing an apartment using bank finance and buying into Sun Villages. And if any of you are into numbers and real estate, please let me know if there’s something I’ve overlooked. Here’s the comparison. Using $80,000 as a 20% deposit to purchase a $400,000 apartment at current average interest rates of 5%, your principal and interest repayments to the bank would be $2218 per month for 30 years. Using $80,000 to purchase Sun Villages Trust Units and renting an equivalent sized apartment for $400 per week, and using the earnings of those Trust Units to offset your rent, your monthly rent payments would be $1333, creating a monthly savings of $885 or $10,620 per year. If interest rates rose 2% to 7% the bank repayments would jump to $2629 per month while the Sun Villages scenario would remain the same, saving you $1296 per month or $15,552 per year. In the Sun Villages model, if these savings were used to buy more Trust Units you could shave off at least $100,000 in total costs when compared to the bank scenario at 5%, and more than $250,000 in total costs at 7%. You could also reach a position where your rent is zero in well under 30 years.We are currently creating a tool for resident investors to calculate these savings for themselves. Similar to the popular online mortgage calculators, we will be able to type in different amounts to determine how much you will save depending upon how much you put it. This will become a valuable tool for illustrating benefits. For those that are interested, beginning in April, (hopefully at our next gathering?) we will be able to help you plug in your figures and explain what they mean.

Combating Risk of Property Loss

Another benefit of the Sun Villages model, using the above example, is that $70,000 of the $80, 0000 worth of Units that you have purchased, as well as the cash flow savings of at least $885 per month, can be used as a buffer in periods of financial stress in a way that a bank can’t and won’t. For example, if you lost your job, you could sell up to $70,000 of your SV Trust Units and that would help you stay afloat for quite some time, whereas with the bank, if you became more than 3 months behind in your payments they would foreclose and you would lose your house, something which is actually happening in Australia now to the degree that the Financial Times publishes articles about the top 100 places in Australia for foreclosures. And I saw it first hand all across America. Home loan arrears (amounts overdue) are getting higher and more frequent in Australia. Mortgage stress, defined as where more than 30% of a household income is spent on mortgage repayments, is also on the rise. Our mortgage debt has doubled in the last ten years, making Australians one of the most indebted people in the world. Sun Villages doesn’t have all the answers but we are taking steps in the right direction.

Claiming tax deductions on depreciation.

Buying Sun Villages Trust Units is considered an investment, because you are buying into the whole building as opposed to an individual dwelling. The investment is made up of buildings, fittings and fixtures which the government sets standard depreciation figures for, regardless of whether or not you need to replace these items. As an investor the 6% return you receive on the Trust Units you own, is considered income, whereas the depreciation of the building is seen as a cost that can reduce your tax. For more information on this topic, speak to your accountant.

Capital growth potential

The site for the Sun Villages development was chosen for its capacity to increase in value and protect against the negative effects of a downturn from a real estate bubble. When comparing local wages and real estate costs with other equivalent sites in the vicinity, the Sun Villages location represents a growth opportunity. The distance from the Sun Villages site to Canberra CBD is 10kms and even though many Canberra suburbs are more than double this distance they are often about 20% more expensive than Queanbeyan. The cost of housing in Canberra is 10% lower than the NSW median house price and 30-40% lower than Sydney prices and yet salaries in Canberra are the highest and fastest growing in the nation. Additional savings that Sun Villages will provide from sharing one connection fee for power, water and internet and the co-generation plant, will be covered in a future newsletter. And if there’s any other topic you would like to see covered, or raised, please let me know. Thats all for now. Thanks to those of you who reached out previously with a reply. Keep you comments coming and I look forward to meeting in April. CheersDavidwww.sunvillages.com.auPH: 0481217634---------------------------------------------------------------------------------Moving costs from selling and then buying another property.